Express law No. 56

26 June 2007

New FMA Regulation 10 delegation and guidance from 1
July 2007

The Department of Finance and Administration has issued
new guidance on the application of Regulation 10 of the
Financial Management and Accountability Regulations 1997
(FMA Reg 10) in the form of Finance
Circular No. 2007/01
. The circular replaces Finance
Circular No. 2004/10 and incorporates changes resulting
from a new
FMA delegation
that will take effect on 1 July.

The circular provides information about how to determine
whether an FMA Reg 10 authorisation is required and, if
so, whether authorisation can be given under the new delegation.
FMA Reg 10 authorisations will now be able to be provided
under the delegation in a wider range of situations.

Is an FMA Reg 10 authorisation required?

FMA Reg 10 authorisation is required for any spending
proposal that is not fully supported by an available appropriation.
The circular provides information about how to work out
when an appropriation is available. In particular, the
circular notes that authorisation will be required in the
following cases:

  • for multi-year spending under an annual administered
    appropriation
  • for uncapped, demand-driven contracts, agreements
    or arrangements unless supported by a special appropriation
  • for uncapped contingent liabilities unless supported
    by a special appropriation that covers the maximum amount
    that could or would become payable
  • unless supported by an appropriation, where a contract
    includes a liability cap which limits a supplier's
    liability
    • to a third party so that the Commonwealth is liable
      to the third party for the excess
    • for damage the supplier has suffered itself so that
      the Commonwealth is liable to the supplier for any
      excess (for example, where the Commonwealth indemnifies
      the supplier for liability it suffers above the cap)
      or
    • to meet costs that the Commonwealth may seek to
      recover from the supplier where a third party has sued
      the Commonwealth for damage resulting from the supplier's
      action or inaction.

Timing for obtaining FMA Reg 10 authorisation

The circular reminds agencies that authorisation must
be obtained prior to Reg 9 approval. It suggests that agencies
consider whether authorisation should be obtained, for
example, before issuing tender documents or media releases
or entering into heads of agreement where it is clear that
such authorisation will be required.

The delegation

There are three ways to obtain FMA Reg 10 authorisation,
if authorisation is required: under the delegation; under
agency specific determinations; or directly from the Finance
Minister. If authorisation is required from the Finance
Minister, it is important to seek authorisation early in
the process. The guidance includes a specific form to use
in conjunction with a submission to the Finance Minister.

Under the delegation, FMA Reg 10 authorisation can be
given by a delegate in six situations. Each situation is
subject to specific conditions and considerations, including,
in some cases, a requirement to obtain the approval of
the portfolio minister. Those six situations are as follows:

  • departmental spending proposals up to 16 years
  • administered spending proposals up to 10 years
  • spending proposals including contingent liabilities.
    (The circular provides that, when calculating the duration
    of an expenditure proposal that involves a contingent
    liability, agencies should use the period during which
    an event leading to a contingent liability crystallising
    could occur but need not include any subsequent period
    during which a person might make a claim arising from
    that event.)
  • departmental spending proposals relating to vehicle
    lease or vehicle purchase arrangements under the Fleet
    Management Agreement
  • spending proposals in accordance with a specific decision
    of Cabinet, the National Security Committee of Cabinet
    or the Prime Minister
  • spending proposals in accordance with a determination
    of the Finance Minister.

Note that the circular makes it clear that no commitments
can be made beyond the limits of any relevant policy approvals.

An update of AGS's Legal Briefing 79, 'Indemnities
in Commonwealth Contracting'
, to take account of
this new guidance, the new delegation and Finance
Circular 2006/03 on limited liability in ICT contracts
will
be distributed shortly. If you did not receive this email
directly from AGS and wish to receive the updated Legal
Briefing and other AGS publications, please email ags@ags.gov.au.

For further information please contact:

Linda Richardson
Special Counsel Commercial
T 02 6253 7207 F 02 6253 7301
linda.richardson@ags.gov.au

Stuart Hilton
Senior Lawyer
T 02 6253 7254 F 02 6253 7301
stuart.hilton@ags.gov.au

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may be prepared by AGS. The material should not be
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